Delek US Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 13 speakers on the call.

Operator

Good morning, and welcome to the Delek US Second Quarter Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Rosie Zuklic, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to the Delek US 2nd Quarter Earnings Conference Call. Participants on today's call will include Abigail Zorek, President and CEO Joseph Israel, EVP, Operations Ruben Spiegel, EVP and Chief Financial Officer Mark Hobbs, EVP, Corporate Development. Today's presentation material can be found on the Investor Relations section of the Delek U. S. Website.

Speaker 1

Slide 2 contains our Safe Harbor statement regarding forward looking statements. We'll be making forward looking statements during today's call. These statements involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. The company assumes no obligation to update any forward looking statements.

Speaker 1

I will now turn the call over to Abigail for opening remarks.

Speaker 2

Good morning, and thank you for joining us today. During the Q2, we delivered solid financial results. Our team executed well and stayed focused on our key objectives. We continue to do what we said we would do. We kept our commitment to return value to shareholders.

Speaker 2

We target a dividend that is competitive and sustainable. Given the market outlook, Our share buyback program give us the ability to further reward our investors in the near and mid term. Year to date, we have returned $95,000,000 towards dividend and share buybacks. Since June of last year We also recognize there is a value in a strong balance sheet and financial flexibility. We continue to improve the efficiency of our cost structure.

Speaker 2

G and A improved in the quarter and OpEx will follow. I'm pleased with our progress. Rosy will give more details in the financial section. Turning to the operation during the quarter. We ran well to most of our system.

Speaker 2

Improving the safety reliability of our refining system is fundamental. During the quarter, we made steps in the right direction. We continue to make good progress. Our refining segment reflects strong contribution for our wholesale and asphalt businesses, driven by local market demand. In addition, our wholesale business benefited from high allocation differentials.

Speaker 2

Our benchmark U. S. Gulf Coast crack spread improved by approximately $5 per bird, which further improved our outlook for the Good is also a good story for us. We see the heavy light differential continue to compress, which is favorable for our configuration As our system is fully balanced at 95% light with no excess naphtha. In addition, With the growth we see in the Permian production, we expect to be favorable in the middle differential.

Speaker 2

Our logistics segment delivered strong results, which with adjusted EBITDA of $91,000,000 this quarter. Our prime acreage is outperforming the Permian Basin. We now forecast around $100,000,000 a quarter From this segment starting in Q4 of this year, retail also posted a solid quarter. In closing, our team continued to successfully advance our strategy. I want to thank each and every Team member for their contribution.

Speaker 2

There is still value to unlock as we continue to execute on our strategic initiative. Now, I would like to turn the call over to Joseph, who will provide additional color on our operation.

Speaker 3

Thank you, Abigail. In the Q2, our team safely processed 295,000 barrels per day Of total throughput, supported by favorable market conditions in our markets, the refining system generated $201,000,000 of adjusted EBITDA. In Tyler, our throughput in the second quarter Approximately 77,000 barrels per day. Production margin in the quarter was $13.87 per barrel and operating expenses were $3.78 per barrel. In the Q3, the estimated total throughput in Tyler is in the 74,000 to 78,000 barrels per day range.

Speaker 3

In El Dorado, total throughput in the quarter was approximately 73,000 barrels per day And short of our guidance, mainly due to a 3rd party transformer failure, which led to a power outage related shutdown. Our production margin was $6.06 per barrel, including an unfavorable impact of approximately $1.50 per barrel due to the power outage. Operating expenses were $5 per barrel. Estimated throughput for the 3rd quarter Is in the 76,000 to 80,000 barrels per day range. In Big Spring, Total throughput for the quarter was approximately 62,000 barrels per day, approximately 8,000 barrels per day under our guidance, mostly due to unplanned diesel hydrotreater catalyst change and vacuum unit maintenance.

Speaker 3

Production margin was $11.55 per barrel, including an estimated Unfavorable $4.30 per barrel impact from the unplanned events. Operating expenses in Big Spring were $8.91 per barrel, including approximately $0.50 per barrel of the unplanned maintenance activities. To support safe and reliable operations in Big Spring, we are investing this year In mechanical integrity and sustaining regulatory items, in the second quarter, Approximately $2.30 per barrel of our reported operating expense were related to that important initiative. Our plant cost going forward is approximately $1 per barrel through the 3rd and 4th quarter of this year. The estimated 3rd quarter throughput in Big Spring is in the 64,000 For 70,000 barrels per day range.

Speaker 3

In Krotz Springs, total throughput was approximately 83,000 barrels per day. Our production margin was $6.21 per barrel and operating expenses were $4.74 per Plant throughput in the Q3 is in the 78,000 to 82,000 barrels per day range. Compared with the Q1, the system benefited mainly from the improved gasoline crack spreads And the reduced RVO cost in the 2nd quarter, where jet fuel and NGL crack spreads Provided some evidence. Strong asphalt and wholesale marketing added $82,000,000 To our 2nd quarter refining segment turning, outside of our reported margins at each of the refineries And their associated capture rates. Approximately $30,000,000 of that added value was generated in Krotz Springs, Driven by light cycle oil, high sulfur diesel and alkylate sales.

Speaker 3

Dollars 14,000,000 Were generated by Tyler Wholesale Marketing. Approximately $27,000,000 were generated in El Dorado And close to $11,000,000 in Big Spring, both driven by asphalt and wholesale marketing. Overall, estimated system throughput in the Q3 is in the 292,000 to 310,000 barrels per day range. We continue to focus on safety, reliability and environmental compliance as our top priorities, And we expect margin capture and cost performance to follow. With regards to DKL, As mentioned by Avigal, we are clearly beneficiaries of the strong Permian Basin growth, Also at the logistics business level, the Midland Gathering System volumes has more than doubled from a year ago And our team has demonstrated solid operations and growth, which are well reflected in the financial results.

Speaker 3

I will now turn the call over to Rosie for the financial variance.

Speaker 1

Thanks, Joseph. I'll start on Slide 5 of our presentation material. For the Q2 of 2023, Delek U. S. Had a net loss of $8,000,000 or $0.13 per share.

Speaker 1

Adjusted net income was $65,000,000 or $1 per share and adjusted EBITDA was $259,000,000 Cash flow from operations was $95,000,000 On Slide 6, we provide a water of our adjusted EBITDA by segment from the Q1 to the Q2 of 2023. The decrease was primarily from lower results in refining, largely reflecting the decrease in crack spreads. The Gulf Coast 5.32 crack averaged All businesses as well as draws on inventory at quarter end partly offset the lower cracks. Retail improved versus last quarter as Crude prices fell, improving pricing at the retail level. In addition, volumes were higher consistent with the season.

Speaker 1

Moving to Slide 7 to discuss cash flow. We drew $43,000,000 in cash during the quarter, ending the 2nd quarter with $822,000,000 The $95,000,000 in operating activities includes approximately $80,000,000 of cash outflows For the inventory draws executed late in the quarter, the timing of the inventory draws is the primary reason net debt increased this quarter. We received the cash for these sales in July. Investing activities of $58,000,000 is mainly for capital expenditures. Financing activities of $81,000,000 primarily reflects returns to shareholders.

Speaker 1

This includes $40,000,000 in buybacks, $15,000,000 in dividends $10,000,000 in distribution payments. On Slide 8, we show capital expenditures. Year to date, we have spent $253,000,000 We estimate the full year to remain at approximately $350,000,000 Net debt is broken out between Delek and Delek Logistics on Slide 9. During the quarter, consolidated Net debt increased by $79,000,000 The last slide covers outlook items for the Q3 of 20 In addition to the throughput guidance Joseph provided, we expect operating expenses to be between 2 $10,000,000 $220,000,000 This includes $10,000,000 to $15,000,000 related to the mechanical integrity work at the Big Spring G and A to be between $65,000,000 $70,000,000 D and A to be between $85,000,000 $90,000,000 And we expect net interest expense to be between $80,000,000 $85,000,000 Before we open the line for questions, a comment on our cost initiative efforts. 2nd quarter G and A as reflected on the income statement is $75,800,000 This includes $4,300,000 of restructuring costs.

Speaker 1

Excluding this one time expense, Adjusted G and A for Q2 was in line with the Q1 of 2023. As provided in the guidance, we expect 3rd quarter G and A to be lower in the range of $65,000,000 to $70,000,000 and now expect Q4 2023 to We are on track to meet our annual run rate cost savings of $90,000,000 to $100,000,000 as we exit 2024. We will now open the line for questions.

Operator

We will now begin the question and answer session. Our first question comes from Manav Gupta with UBS. Please go ahead.

Speaker 4

Good morning, guys. My only question here is, the other inventory impacts was a Big number about $96,000,000,000 Can you help us understand all the components that went into that $96,000,000 other inventory number. Thank you.

Speaker 2

Hey, Manav, good morning. How are you? It's Avigal. Thanks for joining us today.

Speaker 4

Thank you.

Speaker 2

Yes, Manav, you know that we are working at FIFO and the whole point of the inventory is to bring us back to LIFO. So when we are showing the adjusted EBITDA to $0.60 that's the way to compare ourselves to our peers. So that's the headline here, right? The headline is we are FIFO. We want to go back to LIFO to be comparable.

Speaker 2

That's what we actually did on the adjustment, simple and easy.

Speaker 4

So just to be clear, no other adjustments just from FIFO to LIFO?

Speaker 5

Correct.

Speaker 4

Thank you so much for taking my question.

Operator

The next question is from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Speaker 6

Hey, good morning. Is there any update to the sum of the parts Efforts, is the goal still to get the DKL debt off the DK balance sheet? Are there some smaller things you can do in the meantime? And Is there any update on the timing of all of this?

Speaker 2

Yes. Matt, thank you for joining us today. I'm going to start and I will let Mark Holmes, who is sitting here with me to follow. But just to give you kind of high level comments, we are extremely focused Some of the management compensation related to some of the parts, and we are very well aware for the inherent value of our asset, Many logistics, retail, but also W2W and the biodiesel plant we have. And we are actively working to execute It depends, but then I would like to Mark to

Speaker 5

Yes, sure, Abigail, and thanks for the question, Matt. As we've said in the past, and this is still the case, we We continue to believe that our current share price does not fully reflect the value of our respective business segments. In evaluating the sum of the parts, we've analyzed and looked at all the options that are available to us, We do believe that there's a clear path on the actions that we need to take, and we are working hard to execute on that plan. We're not in a position to announce anything at this time, but I can tell you that we're working hard on the initiative and It's complicated. It takes time.

Speaker 5

We're not going to rush into anything across unlocking the value across any of our business segments As we've talked about in the past, but we are committed to unlocking the value. We're committed to doing what's in the best interest of all of our stakeholders. And so When you think about whether it's across midstream, retail, Wink to Webster, all the things that we've discussed In the past, all of those things are things that we're evaluating. And as I said, we do have a clear path forward that we're working on. I'll leave it at

Speaker 6

that. Okay. Sounds good. And then the trading and supply contribution of $115,000,000 in Q2 seem quite large, especially relative to the loss in Q1. Could you talk about what drove that gain?

Speaker 6

For example, was the wholesale side, was that due to better like retail fundamentals? And then to ask what contribution was that due to just the falling crude price in the quarter? And could you also talk about how that's trending in Q3? And then finally, would you say that this is your regular business operations? Or does it involve taking some risks On your side?

Speaker 6

Thank you.

Speaker 2

Yes. So very comprehensive question. I will try to give you as much clarity as we possibly can. I think Joseph did a great job on his prepared remarks of giving some color around $82,000,000 of the 114,000,000 And actually, outlined it by asset and by business stream, all of those assets, we see them as a core business, so Assets that support the refinery, so it's very well something that it's repeatable. But now Joseph Got into that area very well, and I will let him have some comments on that as well.

Speaker 2

Please, Joe?

Speaker 3

Yes, Matt. We mentioned the numbers per In our prepared remarks, let me add to you some information as we are making progress with visibility here and Transparency. So we move around 210,000 barrels per day of light products through our rack. In a typical quarter, we make $45,000,000 to $50,000,000 of contribution Coming from the wholesale marketing, obviously, different things create some volatility, ups and downs. This quarter was really good at $60,000,000 of the $82,000,000 was wholesale related.

Speaker 3

Most of it is really just the location advantage that we have in the markets we operate in. And then on the asphalt side, we do have 750,000 tons per year type of asphalt. Approximately 75% of it is in the El Dorado, driven by Oklahoma, Arkansas, Both in type of pricing, 25% left is more of a big spring. In a good quarter, obviously in the season, We're making approximately $20,000,000 of contribution. And in the off season, And the way our transfer price work, it's probably around $5,000,000 of positive contribution.

Speaker 3

This will give you a good start for the modeling efforts. I hope you all see it's real. The numbers outside the 82 are More inventories and derivatives type of numbers. Did I answer your question, Matt?

Speaker 6

Got it. Thank you very much.

Speaker 3

Thank you.

Speaker 6

Yes. Thank you, Joseph.

Operator

The next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Speaker 7

Hi. This is Nicolette Smelser on for Neil Mehta. Thanks for taking the time. So the first question here is on the more macro side of things. Just any views you can share on the current product market and any additional thoughts around Midland Spreads and where differentials may be trending?

Speaker 7

Thank you.

Speaker 2

Yes, Nefrati, first of all, thanks so much for joining us today. We see the trend positive, right? We see This is close to a 5 year low in Sigozuline. At 5 year low, we see demand Pickup, we see the recession fee that was very well during the first half of the year, fading out just a little bit. That's also improved the tax spread for the right way.

Speaker 2

We see heavy turnaround season coming Q3 that we are not Q3 and Q4, That we are not part of this, you are very well aware. So it seems that we see the heavy light differentials Compressing, which is obviously going our way, so it seems that from it's a good day to be refinanced those days. We see the trends continue. We see strong card spreads. So we are very positive around that.

Speaker 2

Around Midland differentials, I think when the market is a bit underestimate the production and what can it make to differential, At some point, I'm sure that we'll see that movement and widening the meat and the fish, and we'll see production coming up, Which is a positive. We see that on our own acreage, obviously, in our own acreage, we were more than doubling versus last year. But generally speaking, we see the acreage, The Midland production coming up, so it's a very positive news for us as well. So We're well positioned. Our configuration is good for this time being, and demand looks solid and inventory looks low.

Speaker 2

So, both are very constructive.

Speaker 7

That's very helpful color. Thank you. And then the follow-up here is unrelated, but just wanted to About shareholder returns and the $25,000,000 of share repurchases seen here subsequent to quarter end, can you share any thoughts around the buyback cadence And what you may be seeing from either the macro or in the current share price that is contributing to the repurchase levels?

Speaker 2

Yes, Nico, I will give more a broader view around capital allocation. So we see a dividend, 1st of all, competitive and sustainable Through the cycle, and we are planning to maintain it and to hold it and if we have opportunity in the future even to upgrade that. So that's something we are looking at pretty consistently. Obviously, we gave guidance for buyback. And if There are opportunities.

Speaker 2

We're absolutely executing on them. But we have also balanced approach between buyback and the debt reduction. So again, we are seeing a constructive 2023, which allow us to Have a good return to investors in all the three ways that I mentioned.

Speaker 7

Great. Thank you.

Operator

The next question is from Doug Leggate with Bank of America. Please go ahead.

Speaker 8

Thanks. Good morning, everyone. Good morning. Abigail or Joel, I'm not sure who wants to take this. But Joel, you've been there now for I guess you've been there for about 4 months now.

Speaker 8

You've had obviously a pretty good chance to take a look at the operations by asset. I just wonder if you could share your high level thoughts On what you might do differently going forward, what have you seen that provides margin opportunities, cost reduction opportunities or maybe even Portfolio high rating opportunities, any color you could offer from your observations? And I've got a follow-up, please.

Speaker 2

So Doug, That's a great question for Joseph. He's excited about it. Thanks for joining us today. Please, Joseph.

Speaker 3

Thank you, Doug. And I'll take the operations angle of it. So we spoke about the 2 events in Big Spring this quarter, right? So we made the Appropriate repairs and we moved on. But I think more importantly, we have shifted gears with a much more proactive Reliability approach here.

Speaker 3

And we are fully, fully focused on 3 key aspects of our operations: People, processes and the equipment. With regards to people, we were able to fill Key positions in the past couple of months with really strong industry talent and with more people around We understand what good looks like. The foundation is very sound to really build on it, right. Procedures, training, very important, especially with young force, workforce and really lastly equipment. Our prepared remarks, we discussed the $2.3 per barrel spent in 2Q under mechanical integrity.

Speaker 3

Most of the scope is has been around inspections and eliminations of bad actors really to mitigate our risk. The plan is to continue in this second half of twenty twenty three with approximately $1 per barrel Off budget to knock the high priority items out really off the list. When you look back, Delek has gone through a similar program in El Dorado in the past with really good results. Eduardo really runs well these days. In KSR, mechanical availability has trended up In the past couple of years and you can see high rates more consistently.

Speaker 3

I personally ran Big Spring is Chief Operating Officer 15 years ago under the different company. And I know what Big Spring and its workforce are Capable of. So take everything together Doug. I'm very confident about our direction here and I'm sure reliability in capture will follow.

Speaker 8

I appreciate the color, Joseph. Thanks so much. My follow-up, this might actually be for Rosie, but whoever wants to try and tackle it. The trading or the supply and trading contribution has already addressed by a number of my peers, but I want to ask about the July movement. I mean, on a go forward basis, Is there a different level, a different magnitude that we should be thinking about?

Speaker 8

Or do you consider What's happened here recently, including July, to be more one off in nature. Just how should we think about that going forward?

Speaker 2

Hey, Doug, it's Avigal. So Joseph was trying to give some highlights around going out to look at it going forward. And most of the assets over there are sustainable and enjoying from a niche market, but I'm sure that once you read the Joseph answer,

Speaker 3

Yes. We want you guys to understand 2Q results and we want you to be able to model them going forward and Rosy has all the Tools to support you there.

Speaker 8

All right. Okay. I'll follow-up. Thanks guys. The Next

Operator

question is from Ryan Todd with Piper Sandler. Please go ahead.

Speaker 6

Thanks. Maybe a question on CapEx to start. I know 2023 CapEx is finally loaded because of the turnaround work, but are you still on pace to hit your $350,000,000 target for 2023? And then I know it's a little early, but as you look forward to 2024, how are you thinking about the puts and takes in terms of what the 2024 budget may look like?

Speaker 2

Yes. So thanks for the question. We said that 350 is the number that we are at. And therefore, 2020 four numbers, it's a bit early to talk about it. We're obviously just starting budget since now.

Speaker 2

So I'm sure that we will be able to disclose it later So thanks for the great question.

Speaker 6

Okay. Thanks. And I guess 1 on the expense side, operating expense and corporate expense were both lower than we expected this quarter. Know you talked some about the G and A trends expected to the end of the year. OpEx back up a little higher on guidance in 3Q.

Speaker 6

I mean, can you talk about directionally what you saw in the Q2, the trend on operating expenses going forward and how all of this fits within The context of your cost reduction and efficiency goals, how far along are you on hitting those targets?

Speaker 2

Yes, absolutely. So Ruben here, the CFO, will give some highlights around what we call internally zero based budget, And then maybe Joseph will answer my comments around OpEx. Please, Rune.

Speaker 9

Thank you, and thank you for the question. So during the discovery process, we looked at DK and DKL, and we challenge the organization structure organization structures and how we can streamline them By using technology implementation, too many functions, various operational initiatives such as stream and System Improvement, Heater Health and Maintenance and Reliability. In addition to that, we worked on optimizing our transportation segment, Trucking specifically, and we divided the execution to 3 stages, as some of the projects require more preparation And technology implementation and execution time. Phase 1 was executed in June with most of the impact on the G and A. We are working on execution on Phase 2 in the 4th quarter and Phase 3 in the first half of twenty twenty four.

Speaker 9

For 2023, as Rosie said in her prepared remarks, we expect to achieve approximately $46,000,000 in cost savings, a of 40% to 60% between G and A and operations. And those initiatives, plus the one plan for the first half of twenty twenty four, will put us on track For a run rate of approximately $100,000,000 savings.

Speaker 3

Great. I'll take it from the OpEx and the sites level. $5.43 per barrel might be competitive when you look into peers, But it's really not acceptable for us. We find our run rate closer to the $4.75 to $5 per barrel type of range for our entire system. Obviously, in 2Q, the elephant in the room It was a big spring.

Speaker 3

I want to make sure we all know how to model that going forward, the $0.50 per barrel related to the outage is a nonrecurring and then the $2.30 per barrel Related to the mechanical integrity nonrecurring, you take those from the 890 that we reported And we are at approximately $6. $6 is still $1 per barrel higher Then the run rate in Big Spring, most of it is really just the low throughput and the inefficiencies Around it, right? You cannot bring down variable cost as efficiently. You cannot turn down heaters, etcetera. So $5 per barrel in Big Spring run rate.

Speaker 3

El Dorado also with the average type of works Was approximately $1 per barrel higher than the run rate. KSR and Tyler had a good quarter in the range.

Speaker 6

And as you think about the 3Q guidance, is it are you implying that those are still relatively elevated in the 3rd quarter? Or is there Anything else driving the OpEx guidance there?

Speaker 3

Yes. We mentioned the dollar per barrel left in Big Spring for the second half. So Take the $5 in Big Spring, add $1 So $6 there is probably a good A way to go and the rest of the system, yes, should be in the run rate.

Speaker 6

Okay. Thank you.

Speaker 3

Thank you. Thank you.

Operator

The next question is from Roger Read with Wells Fargo. Please go ahead.

Speaker 10

Yes, good morning.

Speaker 2

Good morning, John.

Speaker 10

I think to go down continue down the road on The cost savings, but maybe thinking even the next steps if it's not too premature to ask. But obviously, you want to get your under control, you want to run well, but have you started to look at or consider something on the optimization side? I know feedstock wise, There's not as much flexibility for you given inland units and pipelines in a lot of cases. But to the extent you could do something on the feedstock side or anything you Do you on sort of the yield or commerciality side? I was just curious how that's starting to shape up.

Speaker 2

Yes, Roger, we obviously once we announce something and We are thinking about the next step. So we have other plans coming up, But we are not going to give numbers and time lines for that just yet, but we have a few There's initiatives that we are working extremely diligently in order to be able to share with you guys. And once it's We feel that it's mature like the zero based budget process was before it's mature. We will come back to you with Another leg of initiatives, the numbers and the more diligence around it and specific. So the answer is yes, and we'll come back to you when it's ready.

Speaker 2

Joseph, you want to add to that?

Speaker 3

Yes. So correcting our reliability, Roger, is definitely our best project, right? So we are doing it and we feel good about it. For the 2024 CapEx, We will bring some great ideas. We have several projects that are 50% and up In IRR and return, most of them are refining related like cryo units and liquid recovery Type of upside for our plants, we do have those optimization projects lined up for us In the next year to 2 years to execute.

Speaker 10

Okay. That's helpful. Thanks. I think my other question is along the lines of increasing the dividend, yet if we looked at sort of the cash flow statement balance sheet this quarter, it didn't really Maybe I should say really, it didn't to me necessarily justify an increase in the dividend. So I'm just curious, Avgol, What's going on behind the numbers that provides the confidence to raise the dividend here?

Speaker 2

Yes. So I will start and then I will let Ruben follow. So we see a very strong Cuts, but environment, we see our performance coming very well. We see the cash flow has can dance just a little bit because of timing Of a product receivable and payable, so it's nothing that we are Looking on that too much, it's just a minor tweaks in few days. So it doesn't need to change our view on the business, which it isn't.

Speaker 2

That's the reason we feel confident, Very confident around the business and around the ability to increase dividend. Ruben, you

Speaker 9

Well, just one Ed on that. The June 30 is a cutoff date with the inventory draw of $82,000,000 in the last couple of days of the quarter. We had the $82,000,000 already coming in July, so that kind of made us determine that there should not be any change in our policy.

Speaker 10

Okay. So cash flows are stronger than what they look like in terms of the cutoff there?

Speaker 6

Correct.

Speaker 10

Okay. Appreciate that. Thank you.

Speaker 3

Thank you, Rujio.

Operator

The next question is from Paul Cheng with Scotiabank. Please go ahead.

Speaker 11

Hi, good morning.

Speaker 3

Good morning, Paul.

Speaker 11

I think that, two questions. 1, we're short with all your cost reduction Initiatives and all that, so when we're looking at what you brand as the corporate adjusted EBITDA on a Maybe looking out by 2024, what will be the kind of normal run rate that we should assume in that line?

Speaker 2

[SPEAKER DANIEL MARTINEZ VALLE:] Hey, Paul, it's Avigal. Good morning. Thank you for joining us today. So if we are looking on the G and A basis, if you remember, like Two quarters ago, we gave a guidance that we're going to be 70 or lower for exiting the year. Now we upgrade The guidance and we are saying a better number.

Speaker 2

We're probably going to come back to you next quarter with some more tighter guidance for 2024. In terms of G and A, it's a bit early. We see that we want to see that all the projects that we are lining up are actually materialized the way we wanted, and then we're probably going to give you more

Speaker 11

Okay. And second one is also WielSure. Have you made a decision or that when that you will make a decision on the out deal whether you're going to make the investment And also that one of your peers We recently decided to get out on the inventory arrangement with their vendor and because they're saying that The cost the financing cost is much higher, and then they will be able to do better by themselves. So have the company consider whether you should continue that to have that inventory management arrangement from the outside?

Speaker 2

Yes. So let me answer the first and the second second. So in terms of Bakersfield and the renewable diesel over there, it's obviously a free option, and we are obviously looking on that. At this point, we didn't make any decision. We didn't make any decision, but once there is a decision around that, we'll obviously let you know.

Speaker 2

At this point, it's Not a major item on our list. It's a free option if opportunity presents itself, we'll definitely be there. Around the intermediate agreement, we obviously improve our situation by moving from one vendor to We are looking on the capital allocation extensively. And if we'll assume that we have a better ways, we'll act around it. Obviously, that agreement is shorter and the reason shorter is part of that is to allow us flexibility in the future if we choose to.

Speaker 11

Hey, Erica, for the option on the Bakersfield facility, Is there a time line in terms of when you have to make a decision or that you lose the option or just everything? Can you remind us?

Speaker 2

Yes. There is no time line for that. The auction is existing. There is no real time line for us to make a decision. It's more when the opportunity presents itself, if we find it constructive and And beneficial for shareholders, we do it and vice versa.

Speaker 11

All right. We do it. Thank you.

Speaker 3

Yes. Thank you.

Operator

The next question is from Jason Gabelman with Cowen. Please go ahead.

Speaker 12

Thanks. Hey, morning.

Speaker 6

I just wanted

Speaker 12

to clarify something on Paul's question. Is the Bakersfield renewable diesel asset, is that up and running? Because I thought there was the kind of option Once it's up and running, so just to clarify that.

Speaker 2

No, it's not. There's still no planning.

Speaker 11

All right.

Speaker 12

Thanks. My questions, the first one is going back to the trading supply and other line item and I appreciate all the color and The run rate guidance forward is helpful. But I guess if I look last year, 1Q 2022 was Over negative $100,000,000 each quarter versus kind of the $60,000,000 positive run rate you would expect. So I was hoping you could elaborate on what drove that massive delta between the expected run rate and what you reported in the first half of twenty twenty two and even in 1Q twenty twenty three. That would be helpful.

Speaker 12

Thanks.

Speaker 2

Yes. So we changed few ways we are showing DKTS in the last year and a half or so. So I think that the guidance that Joseph gave going forward is more going to be Allow you to model that better going forward versus looking on the past. In the past, it had different objectives around And when we streamline processes, we made it a bit more clear. And that's part of the reasoning that Joseph gave a much more clear guidance around that.

Speaker 12

Okay. So if I understand what you're saying, there were other activities within that bucket that you're no longer engaging in to the same Extent you were over the past year and a half, is that fair?

Speaker 2

That's fair.

Speaker 12

Okay. Thanks. And then my follow-up is just On the strategic reorg, Mark, thanks for the color. Should we expect an update before the end of the year? Is that a reasonable expectation for the market?

Speaker 2

So I said that in my remark earlier that executive compensation has a big component around Some of the part, so you understand that everyone's motivation is around that and everyone's focus is around that, But we are going to make the right transaction for the company,

Speaker 3

and we

Speaker 2

try to balance between fast And the right transaction. So we are on the same boat. So we want it. We have the right incentives in place to make everyone want it. We have the right plan in place to make it work.

Speaker 2

We just need to make sure that that's what we committed and that's what we want to happen. So it's a big decision.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Avigal Sorek for any closing remarks.

Speaker 2

Thank you. So I want to take my friends around the table here, the executive team, all of Delek employees that had a very good quarter, Very proud of safe and reliable operation. Our ability to be safe and reliable is key, and I'm very proud of the great progress that the operation team is doing I want to thank the Board of Directors for the support and for you shareholders for the great support. Delek is up for

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Delek US Q2 2023
00:00 / 00:00
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